Mortons Market Monitor 2018
Continued lack of supply and record rents have led to a
new wave of development in Bristol’s Office Market
First, the stats: office take up in 2018 totalled 532,085 sq ft in the city centre which is above the 10 year average of 511,733 sq ft.
That lack of new supply has led to a record rent of £35 psf being set at Aurora. Second hand and refurbished office rents continued to rise in tandem: higher quality Grade B space is now achieving rents of £33.00 psf at M&G’s 3 Temple Quay.
Apart from Aurora, now owned by RLAM, no new stock came forward, with the year ending on an historic low point for availability: around 600,000 sq ft in total – of which just 15,000 sq ft is Grade A.
A new grade of offices known as Grade B+ is emerging in the market, where secondhand offices have been remodeled, refreshed and renewed taking into account demands from todays occupiers for additional facilities such as shower and changing blocks, digital controlled lifts, security barriers, increased communal social space and cycle parking of upto 1:100 sq ft.
A prime example of this type of space is at 1 Redcliff Street where AberdeenStandard have just released up to 20,000 sq ft right in the heart of the city centre at a quoting £32.50 psf pa.
With demand strong from several key sectors, a number of major lease expiries due between 2021 and 2022, with at least one major occupier considering relocation or refurbishment.
Developers are vying to fill the void – spurred on by the new rental benchmark. AXA / Bellhammer announced that they are starting speculatively developing Building 1, Assembly – a grade A building of 191,351 sq ft available for occupation in October 2020.
Cubex and Palmer Capital have applied to create 116,000 sq ft at The Halo (formerly the Fire Station) in HQ style with 15,000 sq ft floor plates.
As well as indigenous growth, new companies are continuing to come into the city. This, together with the continuing wave of new start-ups (encouraged by initiatives such as Engine Shed) is providing impetus for flexible and often quirky space.
All eyes are now on Royal London’s Distillery development at Glassfields where work has already started on phase one; 92,000 sq ft of offices which will be available in smaller suites on 10-year leases with five-year breaks and will be ready for occupation in April 2020.
This is to meet not only the urgent need for grow-on space for rapidly growing start-up companies and SMEs, but also to cater for the increasing trend for corporates to take flexible space on top of core requirements.
Bristol was successful in winning part of Channel 4’s relocation during 2018, and the city will act as a creative hub for them, which will help to generate additional contracts locally.
Cubex and Palmer Capital sold The Generator Building to Castleforge to develop 30,611 sq ft of offices over six floors for Bristol’s burgeoning tech, creative and media sectors. Overlooking the Floating Harbour, it’s striking red brick and stone façade make The Generator Building one of the city’s most iconic former industrial buildings.
The developers believe there is a gap in the market for more co-working space set in an unconventional working environment: interior finishes including exposed feature brickwork to complement the fabric of the building and to use it for its own serviced office brand.
Cubex is also progressing with the refurbishment of the nearby Fermentation Buildings, which will include 16,000 sq ft of character office space, due to be finished in summer 2019.
Several other major deals also highlighted the continuing shift towards agile space and co-working:
Runway East opened its first hub aimed at microbusinesses outside of the capital at 1 Victoria Street, while DeskLodge acquired space at Unum House. Both deals were of approximately 30,000 sq ft, and there are enquiries in the market for a further potential 80,000 sq ft. Desk rates currently equate to between £250 – £375 per month.
Other major deals in the city centre include the letting of Eagle House (34,612 sq ft) to Immediate Media, and Parmenian Capital taking 31,233 sq ft at Aurora.
Meanwhile in North Bristol take up was 400,501 sq ft, significantly above the ten year average of 328,021 sq ft.
Key deals included the sale of HP3 and HP4, Stoke Gifford, to UWE (77,673 sq ft) and two deals totalling 62,677 sq ft to Edvance SAS and the MOD at 800 Aztec West.
North Bristol is experiencing strong rental growth – again reflecting a continuing lack of supply against a healthy level of demand.
Although the gap between rents here and the city centre are currently at their highest ever, some city centre tenants are considering out-of-town for their requirements, where traditionally these have been two very separate markets.
The recently-refurbished 140 Aztec West set a new benchmark rent across two deals: £22.50 psf on five-year leases for suites of 6,006 sq ft (let to global logistics company Agility); and 5,982 sq ft (acquired by housebuilder Keepmoat Homes).
The purchase of the Bristol & Bath Science Park by the University of Bath and South Gloucestershire Council will see the development of a new £60m facility by the University which will be a global centre of excellence, delivering transformational research and innovation for the automotive sector.
Further development on site is likely to be stimulated by this investment – including potentially further grow on space to accommodate successful businesses on the Park looking to expand.
Other out-of-town locations also fared well, and with little development in places such as Portishead and Weston-super-Mare, there was even rental growth for the first time in five years. IVC took a further 16,931 sq ft at The Chocolate Factory, Keynsham.
Change of use
While PDR conversions have slowed – not least because business space values are now so competitive – there is speculation (backed by strong Council support) that the next wave of change of use in the city will be from retail to offices, as underused secondary and tertiary locations consolidate.
While 2019 promises to be tight for space, so potentially dimming activity, we might see another record rent achieved if there is competition for the final Grade A space at Aurora or a significant pre-let.
For further information please contact;
Phil Morton MRICS
12 Whiteladies Road, Clifton, Bristol BS8 1PD
T 0117 973 63 99 M 07921061198
E firstname.lastname@example.org W mortonpc.co.uk